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4/01/2008
Securities Suits Up in March
And you can get all the gritty details via Kevin LaCroix's D&O Diary. While you're there, take some time to appreciate the great new site design.

Looks great Kevin!

-- MDT

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10/08/2007
Securities Lawsuits Down
Yes I know that USA Today is a paper practically written in crayon. Still you might find this story on the decline in securities litigation somewhat interesting. Of course, if you keep up with your Stanford Securities Clearing House press releases, you'd already know that their July Mid-Year report shows filings well below the historical average.

-- MDT

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7/27/2006
SSCC Releases New Report on Securities Industry
The Stanford Securities Class Action Clearinghouse, which tracks - well, I guess it would be obvious what it tracks - has released its 2006 mid-year report detailing happenings in the securities litigation world for the last six months (Press release - PDF, Full report - PDF).

Amongst the big news coming out of the report is that the first half of 2006 saw a decline in the filing of new securities cases, the lowest level for any six month period since 1996. "Aha!" you say, "but obviously the first half of 2006 is before options scandal broke open and that has fed a great many new cases."

Well, not exactly. As detailed in the report and displayed by Bruce Carton over at Securities Litigation Watch, there have been only eight stock options class actions filed. Not exactly a mega-number, but it is early days yet and new companies will likely be joining that list. Thus far though, the SSCC says the impact has been less that one might expect based on the wall-to-wall media coverage.

Year-to-year the numbers shake out like this: 111 new securities cases were filed in the first half of 2005. In the first half of 2006, the number of two cases was 61. Annualizing that number (which, of course is only an estimate) would predict 123 cases on the year for 2006, which would be the lowest number since 1996 and represent a 31 percent decline from 2005's 179 cases.

Still reading the the report so there may be other tidbits. Read it for yourself, right here. The Dialy Caveat found Exhibit 9 particularly interesting, which breaks down the 61 cases from 2006 based on the type of allegations. Just in case your curious.

-- MDT

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2/23/2006
Opting Out of Class Participation Leads Some Securities Plaintiffs to Huge Solo Settlements
For as long as I have been an investigator, class actions have been the primary focus of the securities litigation on which I've worked. The same was not true during my tenture with a consultancy who's practice was focused entirely on product liability litigation. There I seldom worked on any class action litigation whatsoever, with a few notable exceptions, as the opinion of our firm's management was that individual litigation brought greater compensation to victims and was more punitive to manufacturers. Interesting, then to see the issue of individual litigation versus class participation raise its head in the securities arena:
Fractured Class Actions - "Opt-outs" are a growing headache for companies

Business Week
FEBRUARY 27, 2006

...Plaintiffs' attorney William S. Lerach is at the forefront of what has become the latest headache for defendants in securities cases. No hard statistics are available, but opt-outs appear to be a more popular tactic for plaintiffs' lawyers. "There's no doubt that the numbers are up," says Stanford Law School's Joseph A. Grundfest, who monitors the litigation...

...While Lerach has helped hammer out plenty of class-wide deals in his time, he now lauds the virtues of opting out. "Why should investors sit passively by and take a couple cents on the dollar?" he says. "This is an extraordinarily powerful tactical weapon."

The trend is causing concern in courtrooms and boardrooms. On Feb. 8 a federal judge in New Jersey postponed approval of a $195 million settlement between KPMG International and tax shelter investors because more than 60 of the 284 investors had chosen to pursue their own litigation. Cheryl L. Evans, special counsel for the U.S. Chamber Institute for Legal Reform, says opt-outs increase costs for companies. "When you have this fragmentation, companies are paying to settle several cases when it's more efficient to work on one front," she says...

...There's always a risk that breakaway investors could do worse by striking out on their own, but there's enough evidence to the contrary to keep fueling the trend...
More here.

-- MDT

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2/07/2006
Class Actions Goin' Outta Style?
Not the first time this has been brought up at The Daily Caveat, but the handicapping continues as to whether the recently reported slowdown in the filing of securities class actions is the start of a trend or just the tide going out. From the WSJ Law Blog:
Class Actions: Going Out of Style With a Bang?

Posted by Peter Lattman
February 7, 2006, 8:49 am
WSJ Law Blog

Last week in a post titled “Underlawyered.com,” we wrote about a study by Stanford law professor Joseph Grundfest, which found a steep drop in the overall number of securities fraud class actions filed.

Today, The Wall Street Journal’s Paul Davies has a story entitled “Class-Action Pay Settlements Soar.” Davies cites a study by Cornerstone Research finding that corporations paid a record $9.6 billion to shareholders to settle securities class action lawsuits last year, compared with $2.9 billion in 2004.

How to reconcile the two studies? The majority of last year’s payouts came from the $6.1 billion paid out by WorldCom and related parties. The number would’ve been even higher had it included the $7.1 billion settlement involving Enron, which was announced last year but hasn’t been finalized.
Click on over here for further details and the benefit of Mr. Lattam's handy imbedded links.

-- MDT

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1/26/2006
Securities Suits Down But Flurry of '05 Restatements Could Bring in a New Bumper Crop
Securities fraud litigation seems unlikely to reach the volume of it's late 1990s boom period, but as long as companies have bad quarters and execs keep covering it up (or just appear to do so), no doubt, the cases will continue. This Boston Business Journal article offers reflection and speculation from several industry heavy hitters, all of whom seem to be of the opinion that '05's relative slump won't necessarily be repeated in '06:

Via the Boston Business Journal:
Shareholder suits down, but a new wave may be near

Sheri Qualters
Journal Staff
Boston Business Journal
Legal notebook

The number of securities class action lawsuits filed in the United States fell off last year, but experts say it's not time for companies to relax yet because a rising number of corporate restatements could harbinger a new wave of such suits. Securities fraud class actions suits slid 17 percent last year to 176 filings from 213 in 2004, according to the Stanford Law School Securities Class Action Clearinghouse. The clearinghouse also says 2005 filings are off 10 percent from the average of 195 suits between 1996 and 2004.

Investor losses also dropped sharply last year. According to the clearinghouse's disclosure, dollar loss index -- which measures the decline in the market capitalization of a company being sued during the period covered by the class action suit -- dropped 33 percent to $99 billion in 2005 from $147 billion in 2004. Losses were also down roughly 50 percent from 2001 and 2002 numbers. Although Stanford's findings are dramatic, observers in the legal community say filings have always seesawed from year to year.

The one-year decline is consistent with the alternating pattern, said Jordan Hershman, a partner in the securities and corporate governance litigation group at Bingham McCutchen LLP. What's more, Hershman said, case filings aren't driven by the amount of actual fraud. But the U.S. stock market's relative stability last year, which registered its lowest volatility since 1996, could be a factor, he said.

"Plaintiffs' class action lawyers continue to control this type of litigation, and they are driven predominantly by their own greed," Hershman said. Speaking from the other side, Glen DeValerio of Berman DeValerio Pease Tabacco Burt & Pucillo said it's too soon to tell if the one-year drop is a trend. The Boston-based firm, which represents plaintiffs in class action cases nationwide, is still plenty busy, DeValerio said.

"You could have significant frauds going on right now that have been going on over the last year (and) haven't been revealed," DeValerio said. "Enron went on for several years until the truth came out." Even one of the deans of the securities class action plaintiffs bar, William Lerach of Lerach Coughlin Stoia Geller Rudman Robbins LLP in San Diego, has been widely quoted as saying it's difficult to draw conclusions from the recent data. "The ocean comes in, the ocean goes out," said Lerach in published reports. "It doesn't feel any different to me.''

But rising earnings restatements foreshadow future lawsuits, said Bruce Carton, vice president of securities class action services at Institutional Shareholder Services Inc. of Rockville, Md. "The fact that you're getting a flurry of restatement of 2005, if it hasn't already led to lawsuits, probably will in the future," Carton said.

Investment research and advisory firm Glass Lewis & Co. LLC of San Francisco reportedly counted 1,031 restatements through the end of October 2005, compared with 650 in 2004 and 270 in 2001. Many recent restatements can be traced back to the requirements of the Sarbanes-Oxley Act of 2002, but following the new rules doesn't make companies immune to lawsuits, he said. "SOX fuels restatements, which fuels lawsuits," Carton said...
More in the full article, which can be found here. Bruce Carton also maintains a fine blog that if you are reading this post you are probably already well aware of. but just in case you're not, you can find his Securities Litigation Watch here.

-- MDT

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1/23/2006
Numbers of Investor Suits Down, But Attorneys Fees Stay Strong
Interesting article that offers some balanced, ground-level thoughts on both the excesses and necessities of the secutities litigation industry. Keep reading for some interesting stats on recent trends and how attorneys, shareholders and targeted companies fared over the last year.

Via The Denver Post:
Investor suits down, yet lawyers reap

By Al Lewis
Denver Post Staff Columnist
January 22, 3006

First, Qwest's former management got rich. Now, it's the lawyers' turn. Of the $400 million Qwest has agreed to pay shareholders to settle civil-fraud allegations, the lawyers representing shareholders are expected to ask for as much as $101.2 million, according to documents filed this month in U.S. District Court in Denver. That includes 24 percent of the settlement, or $96 million, plus $5.2 million for expenses. The money would go to investor-lawsuit king William Lerach and his 160-lawyer firm, Lerach Coughlin Stoia Geller Rudman & Robbins in San Diego. Qwest shareholders, meanwhile, will get about 19 cents on the dollar.

I wasn't able to get ahold of Lerach last week, but members of his firm have previously said they may not ask for the full amount. I don't know why they would do this, being such shrewd negotiators. Are they worried about the objections from a few Qwest shareholders? "I'm going to be right in their face arguing that these attorneys' fees are obscene - that this is just gluttony," said Curtis Kennedy, an attorney representing retirees of Qwest predecessor US West.

Last year, Kennedy filed a similar objection regarding a $50 million settlement that Qwest reached with shareholders over a dividend cut. In that case, a state judge ruled that Lerach's firm and others were entitled to up to 30 percent, or $15 million, saying such fees were customary. Bear in mind, it's also customary for Fortune 500 CEOs to pay themselves as much as $10 million a year. Perhaps some class-action lawyers hope to be worth at least as much as the people they sue.

Legal fees in class-action lawsuits commonly run between 20 percent and 33 percent, said Joseph Grundfest, a former Securities and Exchange commissioner and now director of Stanford Law School's Securities Class Action Clearinghouse. Perhaps, like outrageous CEO pay, it doesn't have to be this way. "In a small percentage of these cases that involve very large dollar amounts and have sophisticated institutional investors as lead plaintiffs, (shareholders) can negotiate (legal) fees of 10 percent or less," Grundfest said.

Imagine Lerach's firm asking for only 10 percent. What's wrong with $40 million? Well, frankly, it's not $100 million. Besides, where would we be without class-action lawyers? Auditors and securities regulators slept through the 1990s. When the market tumbled, all investors could do was sue. Lawyers, including Lerach's firm, bore most of the costs of litigation. Now they are reaping the rewards.

Today, class-action shareholder lawsuits remain a vibrant, albeit declining, industry. From 1996 through 2004, shareholders filed an average of 195 lawsuits a year, according to a recent study by the Securities Class Action Clearinghouse and Cornerstone Research. Those cases were associated with an average annual loss in market capitalization of $127 billion among all the companies sued.

Last year, the number of class-action lawsuits declined to 176, with market-cap losses of $99 billion. That represents a 17 percent decline from the 213 cases in 2004, when $147 billion was lost. Grundfest said it's too early to tell if this is the beginning of a trend, but he attributes the decline to three factors: 1) The boom and bust that led to most of these lawsuits is over. 2) There's better corporate governance now. 3) The stock market "became less volatile in 2005 than at any time since 1996," so fewer investors are losing money.

Most shareholder claims involve misrepresentations made in financial documents and in statements from company officials about business prospects, the study said. Yet the decline in shareholder litigation comes amid a sharp increase in corporate financial restatements. Last year, there were 1,107 financial restatements at U.S. companies, up from 514 in 2004 and 330 in 2003, according to Glass Lewis & Co., an investor advisory firm. The surge in restatements comes amid tough new reporting requirements.

"Not every earnings restatement is the result of fraud," said Grundfest. "It's hard for some people to believe, but sometimes there are honest accounting errors that need to be fixed." And when the errors are less than honest? Well, we can always count on the lawyers to work for a piece of the action.
The original article appears here.

-- MDT

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1/04/2006
Security Lawsuits Decrease in 2005
The Corporate Counsel Blog is quoting a recent Wall Street Journal story that offers details on the annual results from everyone's go-to sources for security lit info, the Stanford Securities Class Action Clearinghouse and its partner, Cornerstone Research. Long story short...while the number of cases brought has decreased, allegations of financial misreporting were up.

Further highlights can be found here as well as links to the the full enchilada.

-- MDT

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8/29/2005
Tort Reform Group Advocates Litigation Against Milberg Weiss
Based on the allegations surrounding Seymour Lazar, tort reform advocate and senior executive counsel of the Washington Legal Foundation, Paul Kamenar (ever notice that vagueness of a group's name is inversely proportional to the narrowness of its goals) is taking aim at Milberg Weiss.

Kamenar has put forth a seminar entitled "Trial Lawyer's Enron" in which he entertains the notion that former plaintiffs on Milberg cases are entitled to compensation for monies alleged to have been unduly awarded to Lazar in his role as a serial lead plaintiff for Milberg. Man cannot live by irony alone...but some days it is enough get you a mention in the newspaper.

Via Law.com:
Group Seeks Suits Against Plaintiffs Firms

Justin Scheck
The Recorder
August 29, 2005

A prominent tort reform group has a new idea for attacking out-of-control litigation: more lawsuits. That was the theme of an online seminar Thursday morning by the conservative Washington Legal Foundation, the champion of free markets, constraints on litigation and rollbacks of government regulation.

The group -- which has become known for filing objections to plaintiffs lawyers' fee requests -- is now advocating for a new type of litigation: shareholder suits against plaintiffs lawyers famous (they would say infamous) for bringing shareholder suits. The occasion, of course, is the highly public federal investigation of the plaintiffs firm formerly known as Milberg Weiss Bershad Hynes & Lerach.

As prosecutors continue to pursue former lawyers of that firm -- it split up last year, with San Diego-based star partner William Lerach forming his own firm, Lerach Coughlin Stoia Geller Rudman & Robbins -- the Washington Legal Foundation aims to piggyback on the allegations by giving the country's top shareholder plaintiffs attorneys a dose of their own litigiousness.

"A taste of their own medicine might be poetic justice," said Paul Kamenar, the group's senior executive counsel and an outspoken critic of securities litigation. The muse behind Kamenar's idea for litigious poesy is Seymour Lazar, the lead plaintiff in many Milberg Weiss suits who was indicted by federal prosecutors in June for allegedly taking payments from the firm (Milberg Weiss and its former lawyers have not been charged).

In his Thursday morning seminar, Kamenar suggested that allegations in that indictment could form the basis for a wide range of suits by former class members from Milberg Weiss suits. "To the extent that shareholders were either defrauded or misled," he said in an interview Wednesday, "or kickbacks were given, there should be some liability, to be sure."

For example, Kamenar said the former class members could sue over fraud claims, unjust enrichment, breach of fiduciary duty (if lawyers put lead plaintiffs' interests ahead of the rest of the class) and -- for good measure -- civil Racketeer Influenced and Corrupt Organizations Act violations.

In the seminar, titled "Trial Lawyers' Enron" after a Wall Street Journal editorial about the indictments, Kamenar criticized the plaintiffs lawyers and spent time discussing a suit in San Francisco federal court that the Washington Legal Foundation has been researching for years.

In that U.S. district court case, Henry v. Terayon, 00-CV-1967, Lerach's named plaintiff is a short-seller, who, Kamenar said, worked to drive down a company's stock price and then sued executives over the fraud that allegedly caused the price to drop. The SEC, he said, is investigating the case.

Kamenar -- who conducted the seminar solo, since another scheduled panelist canceled at the last minute -- said afterward that he's optimistic about the chances of suing the plaintiffs lawyers. "We would be prepared to file such a case," he said. "The foundation is looking to file such a legal action."

Joseph Grundfest, a securities expert at Stanford Law School and frequent critic of the plaintiffs bar, said Thursday that he has heard little about the idea of private civil suits in connection with the federal investigation. "All of this seems premature until we know what allegations, if any, are going to be made against the firm and individual attorneys," he said.

And Robert Lieff, a securities plaintiffs lawyer and partner at Lieff Cabraser Heimann & Bernstein, agreed. "I hadn't thought about it," he said. "It seems bizarre to me." But to Kamenar, bizarre or not, the idea has irresistible appeal. "It would be kind of ironic," he said in the seminar, "to have a class action against Milberg Weiss."
The original article appears here.

-- MDT

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3/15/2005
SEC Chairman Says Advisory Attorneys Need to Learn to Say "NO"
From Stanford Securities Class Action Clearing House:
SEC Chairman Faults Corporate Advisers Lawyers, Auditors Reminded Of Duty

WashingtonPost.com. March 5, 2005
by Carrie Johnson

EXCERPT: Securities and Exchange Commission Chairman William H. Donaldson said yesterday that he was disappointed with lawyers and other corporate advisers who failed to blow the whistle on recent financial abuses, engaged in "rhetorical somersaults" and "lost sight of their basic ethical responsibilities." Donaldson, speaking to a Washington audience of more than 1,000 securities lawyers, said lawyers and auditors are crucial gatekeepers for the integrity of the markets. Lapses over the past few years by outside advisers directly contributed to financial frauds that devastated thousands of investors, he said. "I hope you will not expend significant time, money and energy devising structures aimed at evading requirements and trying to achieve an accounting or disclosure result that . . . artfully dodges the rule's purpose," Donaldson said. The SEC has lodged 76 cases against lawyers in the past 3 1/2 years, chief litigation counsel David L. Kornblau said in a separate Practising Law Institute session yesterday. Kornblau said 18 cases have been filed already this fiscal year. "These lawyers did not seem to have in their vocabulary the word 'no,' " Kornblau said. The conduct of auditors at accounting firms of all sizes also remains on the SEC's radar screen. Agency officials said they will continue to scrutinize auditors' relationships with their clients for possible violations of independence rules. They said they expect more enforcement actions to come in cases where auditors have grown too cozy with their clients to render impartial reviews of financial reports. Separately, SEC chief accountant Donald T. Nicolaisen laid out several of his priorities for 2005. Donaldson said his office soon would release a report about corporate use of off-balance-sheet entities such as those that hid billions of dollars of Enron Corp. debt.
-- MDT

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